Supercommittee fails, cuts coming anyway

The austerity programs being forced by bankers and the IMF on European governments had their counterpart in the U.S. in the Congressional “Supercommittee,” the bipartisan effort at meeting demands by the ruling class to cut the country’s deficits by slashing the social safety net for workers. Since the Supercommittee failed to reach consensus on a set of cuts and/or tax hikes, the legislatively mandated alternative of massive across-the-board cuts at arbitrarily set percentages will take place in 2013.

The Supercommittee’s failure occurs against the backdrop of a still-stagnant economy, one in which corporations are still reluctant to invest, yet not at all reluctant to spend on their own executives’ well-being.

The New York Times reported on Nov. 21 that companies laying off thousands of workers were using huge piles of cash not to expand production, but instead to buy back their own stock—and in the process, given the hefty weight of stock bonuses in compensation packages, stuffing their executives’ pockets. After sliding since the outbreak of the financial crisis, buybacks have reached $445 billion already this year, the most since 2007, when repurchases peaked at $914 billion.

Even financial institutions, which bought back huge amounts of stock over the last decade at share prices far higher than they are today—and by doing so earned the wrath of many mainstream economists who asked why they weren’t investing such sums—have reverted to buybacks. JPMorgan Chase, for example, spent $4.4 billion repurchasing shares in the third quarter even as its stock fell more than 25 percent.

And the retreat back to speculative capital fantasy-land goes on: On Nov. 3, social media giant Groupon held an $805 million initial public offering. On its first trading day the company was valued at $16.7 billion. Soon thereafter its stock price began to slide.

Meanwhile, back in the real world, several U.S. economic indicators were stable or showed little change in October, but one key index—orders for core capital goods, “a good proxy for business investment spending,” said The Times—experienced its sharpest drop since January.

The Wall Street Journal warned that the failure of the Supercommittee meant that at the same time as investors were wringing their hands over the European crisis, they had to turn anguished gazes across the ocean. Standard & Poor’s, which had already carried out an unprecedented cut in its U.S. rating on Aug. 5, warned that “downward pressure on the ratings could build” due to the Supercommittee’s failure, and Moody’s warned of a rating cut should Congress try to soften the mandated 2013 cuts.

In the same malevolent spirit, an economist at a French bank told The Journal that those cuts are “the only thing standing between us and a [rating] downgrade.” And French bankers have good reason to be concerned about the fiscal health of the United States.

The high marks France has gotten until now from ratings agencies for its fiscal rectitude is slipping as it tries to keep Italy from going under. Fears of being pulled down by sinking swimmers, as France is now, is why Germany held out so long against providing assistance, and instead sternly demanded austerity from Greece and the weaker countries. But France borrows heavily in the United States to finance its own debt—and now U.S. banks fear coming losses from overexposure to France’s problems.

U.S. banks’ connections to European banks are paralleled by close ties of U.S. manufacturers: Automakers depend on sales in Europe for 30% of their output. The equivalent figures for household products is 17.5%, and for pharmaceuticals and biotechnology 15.5%. And, of course, U.S. manufacturers are just as tightly dependent on Asian producers and consumers—dangerous connections given the decreasing ability of the latter to sell to Europe.

Unions, organizations of the oppressed, antiwar groups, and the Occupy movement are all trying to grapple with how to resist the attacks on workers stemming from the above-described phenomena. One place to start is with the demand for opening the account books of the banks and corporations, and on that basis proving the justness of demands to cancel the debts of workers, students, and consumers (and of the public agencies that provide their social safety net, but are now being strangled by the banks). Certainly, the Occupy movement and its allies in labor and other movements are well positioned to take up these demands.

> The article above was written by Andrew Pollack, and first appeared in the December 2011 print edition of Socialist Action newspaper.